Is the Anglo Promissory Note “deal” announced in March 2012 now in tatters?

If you ask the Government what it has done to deal with this country’s debt, particularly the debt arising from the €68bn* bank bailout, you will get a three-part response. Firstly the Government claims to have saved the State €10bn through negotiating a reduction in the bailout interest rate from about 6% to 3.5% last July 2011, secondly the Government has saved €5bn by negotiating deals with subordinated bondholders at the state-guaranteed banks and thirdly the Government negotiated a deal whereby the €3.1bn payment of the Anglo Promissory Note in March 2012 was deferred.

On the first you might rightly point out that the interest rate reduction was secured on the shirt-tails of Greece’s woes and that Ireland had to give corporate tax concessions for the reduction, something Portugal didn’t have to provide even though Portugal got the same interest rate reduction on its €52bn EU bailout (Ireland’s EU bailout is €45bn).

On the second, the Government has indeed saved us €5bn on subordinated bondholders. Having said that, Fianna Fail and the Greens saved us €10bn on subordinated bondholders up to March 2011, so all the Government did was continue the same programme of negotiations. And indeed the Government was met with more legal challenges, some of which are still ongoing eg the Fir Tree case in New York.

But on the third, it seems that you will shortly be able to say “what deal?”. Remember the outline of the “deal” was that NAMA would temporarily pay the promissory note in March until Bank of Ireland had ratified with its shareholders a deal whereby it would loan IBRC the €3.1bn for a year, after which the Government would seek to get the bond markets or Troika to fund the payment. The Minister for Finance, Michael Noonan issued a Direction to NAMA to provide the temporary loan for a period of up to 90 days. In fact NAMA loaned IBRC the €3.1bn for 60 days which expires on 30th May, 2012 – that’s today and it looks as if “the deal” is now in tatters.

Bank of Ireland was to have held an Extraordinary General Meeting to approve the Bank of Ireland board’s nod to the Government that it would provide temporary lending. 53 days after the announcement of the “deal” in the Dail by Minister Noonan, there is still no notice of any such EGM. And today, NAMA’s loan runs out.

Will NAMA renew its €3.1bn loan for another 30 days to an institution which is bust? Where the planned source of funding – Bank of Ireland – is showing no signs of agreeing to provide that funding? All for a total interest return of 2.35%? Or will NAMA do what it should have done in March and seek a judicial review of the Direction, have its board, particularly the non-Irish former-IMFer, Steven Seelig, speak out about political intereference? Minister Noonan’s Direction issued on 29th March, 2012 told NAMA to extend facilities to IBRC for up to 90 days which expires at the end of June 2012, so the betting is that NAMA will renew for 30 days its loan “on commercial arms-length terms” to one of the most bust banks in history, with serious doubts that NAMA will get repaid at the end of June.

It’s funny that even An Taoiseach Enda Kenny has gotten involved in the Quinn shopping centre machinations inKiev,Ukraine where there are accusations of “raidering” whereby the €50m shopping centre is being stolen from beneath Anglo’s noses. And we hold our noses at the corruption in Ukrainian courts and business generally. And yet here in Ireland, we have the farce of Minister Noonan “raidering” NAMA’s coffers to support a deal which looks as if it is coming off the rails, and which may substitute €3.1bn of cash in NAMA’s books with a doubtful loan to IBRC. “Classy” as the Americans would say. It certainly tarnishes the three accomplishments of reducing the debt burden, about which the Government is so proud.

UPDATE: 30th May, 2012. The Sunday Business Post website is reporting that a NAMA spokesperson told Bloomberg News that the loan from NAMA to IBRC has been extended to the end of June 2012. No further information on the extension is provided.

UPDATE: 31st May, 2012. Bank of Ireland issued a circular announcing the EGM yesterday afternoon. The Bank’s board is recommending acceptance for four reasons, the margin, the benefit to the wider economy, protections and a guarantee of repayment from Minister Noonan. There is NO MENTION of the fact that the Irish government bond repayable on 18th April, 2012 is presently paying 4.62%. So the “protections” which have not yet been disclosed in detail may account for the difference between the 2.35% that Bank of Ireland is earning versus the 4.62% it could get on the open market. The “protections” are described as follows : “The Agreement contains several provisions which protect the Bank against market, liquidity and credit risk. These features include early termination provisions, daily margining requirements and protections in the event that the Bank is unable to fully finance the purchase of the Bonds under the standard ECB open market operations.” The EGM is set to take place on 18th June, 2012 and reporting suggests that NAMA has extended its loan to IBRC until 20th June 2012. Bank of Ireland is set to loan IBRC €2.83bn based on the ECB discounting the value of the collateral by 5.5% (this is not quite clear because the bonds were to have had a face value of €3.5bn) but it will seemingly mean IBRC has to rustle up €180m from its own cash to add to the €2.83bn to pay NAMA back its €3.06bn. Curiouser and curiouser…

@Kieran, what happened at the end of March or 3rd April 2012 in fact was that NAMA transferred €3.06bn to IBRC at 2.35% per annum until 30th May 2012. The Government was thus able to say its Promissory Note debt to IBRC which fell due in March was paid.

IBRC then paid the €3.06bn to the Central Bank of Ireland because the central bank had previously lent IBRC money on the strength of the promissory notes as collateral.

The central bank then “destroyed” the cash that it had created to loan to IBRC in the first place.

So as things stand today, IBRC owes NAMA €3.06bn plus €11m in interest for 58 days at 2.35%.

IBRC was hoping that Bank of Ireland would be lending it €3.06bn which it could then use to repay NAMA but alas, there is no sign of that loan coming from Bank of Ireland, and so far there isn’t even any sign of an EGM at Bank of Ireland to seek shareholder approval for the scheme.

What was originally intended for March 2012 was that we would borrow €3.06bn from the Troika at an average rate of about 3.5%. Instead we are borrowing at 2.35% from NAMA and, in theory, from Bank of Ireland. So there may be a saving but as yet Bank of Ireland has not scheduled an EGM to seek shareholder approval for the deal announced by Minister Noonan in March 2012, on the basis of apparent agreement from the Bank of Ireland board.

It’s great that you’re highlighting this but surely the comparison with Ukrainian ‘raidering’ is off the mark? What happened in Kiev was deliberately intended to take funds from (ultimately) the tax payers’ pockets and have them end up in the pockets of private individuals instead. What is going on with the PN is just our run of the mill Irish political obfuscation. We were led to expect a deal would happen, then we were given a fudge about half a deal having happened, and now, depending on how this pans out, there might be a quarter of a deal or no deal at all. Either way the €3.1bn is not going to end up in the pocket of Enda Kenny or any other private individual. It was owed, it was paid, we thought we could borrow money from somewhere else to backfill and now we probably can’t. It does not reflect well on our political maturity that deals are conducted in this manner but it is not correct to equate political spin with an inherently corrupt judicial system.

Sorry Johnny, comparisons with Ukraine off the mark? Those P Notes – that €30.7bn was printed by our Central Bank ONLY because the ECB, fearing contagion and to protect the euro and the big banks of Germany and France, wouldn’t allow us to burn the bondholders from those two failed zombie banks, Anglo the real stinker. Every cent of that €30.7bn went to those bondholders, not a single cent went to the Irish tax-payer, yet we’re the ones who have to pay for it – that money IS coming out of the pockets of the Irish people, tax-payers and all, and IS going into the pockets of private institutions and thus private people, as is/will be the entire €62.8bn, PLUS the €5bn also ‘donated’ by NAMA to our banks, PLUS the next ‘recapitalisation’ of the banks.

I don’t disagree with that. Landing the original debt on the Irish tax payer leaves the Ukrainian shenanigans in the pale. But that was not the comparison I believe NWL was making; and the comparison with which I was taking issue; that the incompetent handling of the refinancing of a small part of that debt is itself equivalent to corrupt actions of the judiciary in Ukraine.

Excellent work, NWL.
I wonder why Bank of Ireland hasn’t called an EGM to discuss this?
Regardless, NAMA is now a political plaything at this stage whereby the politicians can do as they please it would appeear.

NAMA,has to share some of the responsibility here,they were hoarding cash like a group of nervous shylocks.They had no strategic plan for their cash mountain at the time-do they now-othhistamine this riddiclous early retirement of cheap funding.
They had not identified any projects that were receiving funding as provided for,selling prime London assets,sitting around counting the spoils.
Of course they got mugged,was Frank or Brendan career yes minister men,going to stand up to Noonan,hell no.

It’s exactly as forecast on here when Michael Noonan announced it in the first place. Whatever happens this year’s €3.1 billion will have to be paid. Even borrowing from bank of Ireland (which won’t happen) only delays the inevitable.

It means that we have to find €6.2 billion next year, to make up for not finding the money this year and robbing it off NAMA instead. It just postpones the inevitable. At some point it has to be paid.

@GD, You are absolutely correct. The point I was trying to make (very badly) was that the government robbed Peter to pay Paul – thereby deferring the cost. It just piles on the debt. We now have to find another €3.1 billion next year, and then another…. In reality all we have done is borrow to pay a debt, thus achieving nothing except deferral. In the end we either have to get it written it off, written down or pay it.

No one mention of it in Frank’s latest speech-breakfast in Galway anyone!
He is starting to sound like Kenny ‘forgive me my past,I will give you my future’ Rodgers,or a broken record.Perhaps,a few words Frank on NAMA’s largest financial transaction,ah go way out that,I want to talk about the future!

“This morning I want to look forward more than look back.”..how about we all pretend the 3billion never happened ok!

Further into the speech,he utilized a quote by a rather obscure esoceteric American writer,John Barth,assume his works are next to Frank’s dog eared copy of Gravity’s Rainbow,hey Frank why not try this yourself,the “reality” is you owe an explanation.

“John Barth, who said: ‘Reality is a nice place to visit but you wouldn’t want to live there’. Well, frankly, unlike some of the commentariat, we do not have the option of living anywhere else.”

So where exactly are you living then Frank,you just like that lend 3billion of taxpayers money conditional on shareholder approval,but no explanation?
Maybe,it’s time Frank spent some more quality time with his family and extensive collection of postmodernist American fiction.

the merry-go-round is due to get bigger and better when the ESM comes into play… what odds on the P-notes coming from there in years to come?
side note; I have always thought that whenever the NPRF gets mentioned that the assumption is that it was free dosh that was saved in the good times, some of it was but some was sovereign borrowed money via NTMA.

Not to panic everyone, but ex Prime Minister Felipe González is using the term “total emergency” to describe Spain. The country risk is now way over 500, 542 to be exact. Not to worry, much less about a stinking 3 billion owed NAMA, because Brussels is now going to directly bailout all the banks. This is what the big boys have wanted from the beginning. You save all the banks and their investors and to hell with the sovereign countries. I think the eventual plan is to just have European Union of Banks, EUB, and forget about nation states, which really don’t matter anymore in a corporate world. By the way, Ireland was way out front on this new world order when they backstopped its banking sector at the cost of the nation. Gold star for being ahead of the pack.

@JW perhaps Frank is a surrealist,lately there is something very surreal about NAMA and its silence on the Anglo note.Are we expected to believe that Frank drove to Galway for his 7.30 breakfast gig,caught a train,uses a driver.
Or booked into a swanky hotel,had a nice meal,watched an in room movie or two,unwound with a brandy all on the beleaguered knackered broke Irish taxpayer.
Who knows,who can tell,you are NOT allowed know NAMA’s travel expenses or arrangements it’s a secret all very surreal!
Why the burning need or desire to address this audience in Galway,Was this a favor for the xpresident and fellow board member of NAMA,McEnery.
NAMA,needs to explain the details of the Anglo note,in the meantime Frank can you spare us the junkets to Galway to address an adoring and captive audience of accounts,the fellows of the ACCA must have been swooning listing to your plans.Same group of accounts who no doubt provided audits on the. Ety developers you are

Sorry mobile,
Same group of accountants that no doubt audited most of the developers and banks books,Oh look Frank the ACCA had a breakfast meeting in Dublin,week before.
Still,not have as much fun or expense as traveling to Galway,what on earth did you do with the rest of your taxpayer paid day,the gig was over at 9.30?
Is Galway,a back office destination for these mysterious international investors you constantly alluded too,it’s definitely “off the grid” from a high finance point of view,but great fun place to visit or have breakfast with a load of bean counters,are you hoping they pool their capital and buy some NAMA assets!
Reality is a nice place to visit Frank,try it some time.

With all this talk of who is paying……
Eventually someone needs to “adequately” address the simple question
“Where, exactly, to whom, is the money going?”
and no more crap about pensions, which is no doubt partly true.(and yes I saw the partial list)
But, given the crumbling economy, to continue paying to faceless, nameless, electronic trading entities (people) without even knowing who they are is no longer reasonable.
Goldmans?
‘Slasher the hit man’ in Prague?
John Terry’s personal retirement fund? (we know we help pay his wages already)
Who is it that Ireland is closing hospital beds for? Exactly who?
At least highlight the cartels of crooks.
Having seen how wrong and misdirected almost everyone has been, at least once, so far in this saga, there are no more stupid questions.
Some very basic information is being lost in the mix. Such as …who gets the money?
Oh I forgot, the Banks law is a bit like Canon law and trumps all other forms of authority and they cannot…of course, silly me, divulge details of private clients, who no doubt appreciate the hardship you are enduring on their behalf from their new yacht.

D’you know I would be surprised that there are parties on both sides of this deal.

By that I mean that I would not be in the least bit surprised to see the names of developers bailed by NAMA, turning up as investors with the senior bondholders who loaned money to the bankrupt Irish banks and who have been repaid in full.

@GD, Funny you should say that. I always felt that it was a viable strategy to buy Anglo bonds at a huge discount and offer them back to the bank as “setoff” against loans. It is a perfectly legal transaction. The only difficulty was that because the Irish government was supporting the price of the bonds at an unjustifiably high level, the transaction did not make sense. But then not a lot of what the politicians have done in this whole fiasco has made sense.

If the above had been allowed to happen, it would have meant that the borrowers could have repurchased their loans at a huge discount. The bank would have received payment (probably as much as they got from NAMA) and the bondholders would have got the market price for their bonds – not the inflated price that the Irish taxpayer gave them.

Politicians and civil servants pulling “strokes” (by way of guaranteeing the bank bondholders) and exercising amateur interference in commercial activities just result in huge missed opportunities by way of market solutions.

@GD here you go!
“THE HIGHLY unusual approval of a €15 million loan by Anglo Irish Bank to Belfast property developer Paddy Kearney to buy subordinated bonds in the bank was all the more shocking in that it was sanctioned in February 2009 after the nationalisation of the bank.”